What is the true state of our economy, and what should we do about it?

BRADES, Montserrat, June 28, 2017 – One of the common sayings on our streets is “the economy is dead,” and many shop-owners say that sales are “slow.” At the same time there is a wave of “new” Internet cars on our roads – which will eat up “free- to- spend money” for many families. Some local businesses are actually building additional capacity, while many others have “dead” or slow-moving stock. Some homes are being built, but there are few factories. For decades, local agriculture has been a tiny sector of our economy, now about 2 – 3%. There has been an obvious increase in cruise ship visits over the past few years, but tourism is nowhere near what it was pre-volcano. A very mixed pattern.

How, then, can we make sense of the economic big picture? For one, the ECCB is the official source for economic data about Montserrat. So, here are their January 2017 growth rate figures since 2007- 8 (when the global economic down-turn began):

As a comparison, the IMF recently estimated that the USA is expected to grow at 2.3% this year, the UK at 1.5%, Germany at 1.5% and France at 1.3% – major sources for tourism. In the years since 2007 – 8, US growth has never exceeded 3%. Such persistent low growth is a clear sign of long-term weakness of the global economy. Also, a few years ago, the ECCB noted that growth in the EC$ zone has slowed from 6% in the ‘80’s to 3% in the ‘90’s then to about 1% recently, and has called for measures to restore long-term growth to 5 – 7%. (Note: Montserrat’s economic numbers critically depend on and fluctuate with annual budget grants and capital aid projects from the UK. Figures for 2016 – 18 (in blue) are estimates or projections, showing a gradual increase in growth. Where, too, EC$ 100 – 200 thousand – less than the cost of a “typical” house – is about a tenth of one percent of our local economy’s annual output, its GDP. That is, building just one house can make a difference. And, post Brexit, UK capital project support is uncertain, in part due to the fall in the Pound and given the UK’s ongoing negotiations to leave the EU. We also have to address major challenges on financial management, governance and transparency.)

In 2012, as part of a business case to inject over EC$ 5 million to deal with MDC’s “failure,” DfID argued[1]:

“The economy of Montserrat has never recovered from the volcanic eruptions of 1995 and subsequent years . . . . The population has now declined to 4922 and the base of local business comprises 150-200 firms, mostly micro-enterprises servicing the small local market . . . The tourism sector has also declined by over 50% since the mid-90s. Housing and other social amenities existing before the eruptions have not been fully replaced. The island is heavily dependent on imports of all types of goods and services . . . .

Little Bay and Carr’s Bay are the only developable sites left on the island capable of offering access by sea, providing a base for new [investment] in tourism and other sectors, providing new commercial space and civic amenities and housing the critical mass of population and business necessary to stimulate local private sector development.”

Unfortunately, this picture is still largely so five years later – something both our local governments and DfID need to clearly, publicly explain. Notwithstanding, they have agreed to jointly expedite several key projects:

sea port development, phase 1

geothermal energy development,

hospital developments,

access and connectivity; and,

human resources/public sector reform phase 3

These and other similar projects (e.g. Fibre Optic Cable based digital access) should help to open up room for self-sustaining economic growth and transformation. However, it will likely take 2 – 3 years to get these projects moving, and economic transformation will probably require 10 – 20 years; that’s what it took between the 1960’s and 80’s. In the meanwhile, and alongside those projects, we need a steady flow of modest development-oriented projects. Such projects will help to rebuild our infrastructure, promote economic development, meet key education, health and welfare needs, while providing employment. Again, just one house makes a difference – much less, seven.

However, an artificially pumped up “boom” is neither the normal state of an economy nor is it a wise one. As,excessive “stimulation” will “overheat” and distort an economy and will create unrealistic expectations that will make the following “bust” all the harder to bear. And, if an economy’s productive capacity has been reduced due to shocks or the economy is out-dated, “overheating” may happen before all who want jobs can find work. Likewise, if businesses are not well suited to the changing local or global economy, they can fail even while others are seeing “good” times. Also, what feels like good growth can be unsustainable, due to a mismatch to key trends and hazards. For example, it could be argued that by the mid 1980’s local and UK officials knew or should have known about our volcanic hazards, and they had in hand specific recommendations. Putting all the eggs in the Plymouth basket (especially post-Hugo) may well have unfortunately contributed to what proved to be unsustainable development.

We cannot change the painful past, but we can learn from it. So, going forward, let us focus development policy on sound, self-sustaining economic growth and development.